Friday, September 28, 2012

I am a greentech enthusiast and I have been closely following the greentech VC investment landscape. The VCs like Kleiner Perkins who have had a large greentech portfolio including companies such as Bloom Energy are scaling down on greentech investment. Their current investment is not likely to get any returns close to what a VC would expect. The fundamental challenge with such greentech (excluding software) investment is that they are open ended capital-intensive; you just don't know home much time it would take to build the technology/product, how much it would cost, and how much you would be able to sell it for. The market fluctuations make things even worse. This is not only true in the case of start-ups but also true for the large companies; Applied Materials' grand plan to revolutionize thin-film solar business ended up in a bust.

There's a different way to approach this monumental challenge.

Just look at how open source has evolved. It started out as non-commercial academia projects where a few individuals challenged the way the existing systems behaved and created new systems. These open source projects found corporate sponsors who embraced them and helped them find a permanent home. This also resulted in a vibrant ecosystem around it to extend those projects. A few entrepreneurs looked at these open source projects and built companies to commercialize them with the help of VC funding. Time after time, this business model has worked. Technologists are great at building technology, companies are great at throwing money at people, entrepreneurs are great at extending and combining existing technology to create new products, and VCs are great at funding those companies to help entrepreneurs build businesses. What VCs are not good at is doling out very large sum of money to bet on technology that doesn't yet exist.

If we need to make it work, we need a three-way relationship. People in academia should work on capital-intensive greentech technology projects that are funded by corporations through traditional grants. These projects should become available in public domain with an open source like license or even a commercial license. The entrepreneurs can license these technology, open source or not, and raise venture money to build a profitable business. The companies that are constantly contributing their greentech initiatives to public domain should continue to do so. Facebook's Open Compute project is gaining traction in its second year and Google continues to share their green data center design.

Many large companies have set up their incubators or "labs" to find something that is fundamentally disruptive that could help their business. Later, there have been a very few success stories of these incubators or labs because the start-up world is way more efficient to do what big companies want to do. These labs are also torn between technology and products. My suggestion to them would be to go back to what they were good at - hiring great scientists from academia and working with academia on the next-generation technology to create a business model by either using that technology in your products or to license it to others who want to build business. This shifts the investment from a few VCs to a relatively large number of corporations.

Wednesday, September 19, 2012

I am in India visiting a large customer who has heavily invested into organized retail stores, a relatively new category for the Indian market. Their head of analytics shared some details of their last promotion with me. They ran an email promotion to send out coupons that were valid on one and only one day -15th August, the Independence Day of India, which is a holiday in the country. They were really bold to take out a page-long ad in all large newspapers on the 15th August highlighting this promotion.

Their sales, in all regions, soared on that day. It not only soared but broke all their previous records. They registered the highest sale in that year which was more than the Diwali sale. In the American terms, they managed to sell more on 4th July than on the Black Friday. This shocked me. I analyzed their efforts further to better understand this behavior.

Indians in India don't drink beer, barbecue, or watch fireworks on the Independence Day. In fact they don't do anything. It's just another day except that you don't go to work and kids don't go to school. That was the key. Since they didn't have anything else to do they went to the store and shopped. They bought things they were contemplating to buy for some time. This is where coupons helped and they also ended up buying things they didn't need. Yes, they are quickly learning from Americans.

What amazed me the most that the company manufactured this behavior that was analytics-led. They studied all kinds of data, created a promotion, made sure that they can execute on their promotions, and customers came. And, they are using this data to further refine their promotions and store inventory.

Big Data and analytics are not only useful to instrument existing customers' behavior but they could also help create new customer behaviors. This is especially powerful when the company is in high growth mode and has a bold vision to do whatever it takes to gain a top position in the market.

As I blog this, Indian government just changed their policy to allow up to 51% of foreign direct investment (FDI) into multi-brand organized retail sector. India has miles to go before the organized retail sector shapes up; Indians still prefer to shop at mom and pop stores and not at a large organized Walmartish store. Due to lack of a mature organized retail sector the (Indian) companies don't have a pre-conceived bias on how to run a large brick and mortar store - that's a good thing. They are not localizing a global brand. They are creating a new brand, and hence new consumer behavior, from ground up. And, analytics has been playing a key role than ever before.